Adani Ports hits 5-month low; down 5% in two days post October biz update

Given APSEZ's market leadership and operational efficiency, it is set to remain a dominant beneficiary of growth in the ports sector with capex plans being funded via a mix of debt & internal accruals

Shares of Adani Ports and Special Economic Zone (APSEZ) hit a five-month low of Rs 1,296.1, down 4 per cent on the BSE during Tuesday’s intraday trading. The stock ended 1.5 per cent lower at Rs 1,329.25, as compared to 0.88 per cent rise in the BSE Sensex. In two days, the stock price of the Adani group company declined 5 per cent after the company reported handling 37.9 million tonnes (mt) of total cargo in October, compared to 37.5 mt in September 2024.

 

Year-to-date (YTD) October 2024, APSEZ handled 257.7 mt of total cargo (+8 per cent year-on-year (Y-o-Y)). This growth was 

supported by containers, which was up 19 per cent Y-o-Y, followed by liquids & gas (+9 per cent), the company said. 

APSEZ hit its lowest level since June 6, 2024 in intraday deal. Following two days of correction, the stock has fallen 17 per cent from its 52-week high price of Rs 1,607.95, reached on June 3, 2024. 

 

APSEZ is India’s leading port developer and operator, comprising 15 ports and terminals with a total capacity (including joint ventures) of 627 mt as of the end of 2023-24 (FY24). It is also the approved developer of a multi-product SEZ at Mundra and Gangavaram ports and their surrounding areas. 

Last month, India Ratings and Research (Ind-Ra) upgraded APSEZ’s long-term issuer rating to ‘Ind AAA’ with a stable outlook. Ind-Ra expects the company to maintain double-digit revenue growth in the near term, supported by increased utilisation of its existing infrastructure while sustaining the earnings before interest, tax, depreciation, and amortisation margin (Ebitda) in the range of 57-59 per cent (FY24: 59.4 per cent). 

Given the capital-intensive nature of the port and logistics business, APSEZ is required to continually incur capital expenditure (capex) towards port development, expansion, mechanisation, and the development of downstream logistics infrastructure.

According to management estimates, APSEZ will incur capex of around Rs 11,500 crore in 2024-25 (FY25) and 2025-26 each, in addition to any acquisition-led investments. 

Ind-Ra believes that capital investment could affect the company’s liquidity. However, the agency finds comfort in (a) the positive cash flow from operations (net of cash interest) of Rs 11,864 crore and Rs 13,402 crore in 2022-23 and FY24, respectively; (b) the company’s ability to raise equity from international development finance institutions and global logistics players; and (c) the modularity of capex required for logistics development and decarbonisation. 

Analysts at Elara Capital maintain a ‘buy’ rating on APSEZ, with the target price unchanged at Rs 1,813. APSEZ, with a total capacity of 627 mt, reported 220 mt in volume for the first half (H1) of FY25, reflecting a 9 per cent year-on-year increase against guided volumes of 460-480 mt for FY25. 

Volumes in H1 were lower  

than the guided range by 10-14 per cent due to disruptions at Gangavaram in the first quarter and Mundra in the second quarter (Q2), amounting to 8 mt. 

In Q2, APSEZ completed the acquisition of Gopalpur Port and signed two new concession agreements for Tanzania and Deendayal ports. The company expects incremental volumes to flow in the second half (H2) from these new ports.

Given APSEZ’s market leadership and operational efficiency, it is poised to remain a dominant beneficiary of growth in the port sector, with capex plans funded through a mix of debt and internal accruals to maintain a healthy net debt-to-Ebitda ratio of less than 2.5x (2x as of September 2024). 

Analysts at BNP Paribas Exane Research have an ‘outperform’ rating on APSEZ with a target price of Rs 1,674 per share. The company’s volume growth is driven by market share gains in India’s cargo volumes, stemming from organic growth and a turnaround in operations of recently acquired assets.

 

APSEZ requires a monthly run rate of 40-43 mt for H2FY25, compared to 37 mt in H1FY25 and 37.5 mt in September 2024. The brokerage firm considers this somewhat challenging due to ongoing disruptions at Gangavaram Port, caused by the non-functioning of two of the three blast furnaces at Rashtriya Ispat Nigam (RINL) due to working capital issues. Unless the RINL production issue is resolved, a complete recovery in Gangavaram volumes is unlikely.